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Ming Zeng: Smart Business; What Alibaba’s success reveals about the future of strategy

E-commerce is just commerce, connecting and empowering people all over the world. Alibaba is what you get if you take every function associated with retail and coordinate them online into a sprawling, data-driven network of sellers, marketers, service providers, logistic companies and manufactures. Alibaba uses technology to harness and coordinate the efforts of thousands of Chinese businesses to create very different and internet-native business ecosystem that is faster, smarter, and more efficient than traditional business infrastructure. Alibaba transformed China’s entire nascent retailing industry, and its partner firms Ant Financial and Cainiao Network have done the same in payments and logistics.

In China e-commerce is the main course, not like in USA, where new technologies where actually used to address new problems. In China they were also solving old ones. The United States has seen less penetration of new technology into traditional business because of the efficiency of establish America industries, but change is coming. As Joseph Schumpeter explained, revolution comes from periphery, where dominant structures and logic are less embedded. China is not catching up; it is innovating in parallel and even leapfrogging Western companies in certain areas. Alibaba’s key contribution to future business strategy is its use of cutting-edge technology at enormous scale to transform business and eliminate traditional economic inefficiencies.

New paradigm is interconnected players – buyer, sellers, and service providers – come together and coordinate through real-time data mediated by technology. Author calls this strategy smart business. To enable such massive, complex interconnection, companies must automate many decisions and actions. Unimaginable scale is possible when businesses are smart.

Data and network reinvent strategy. These two new capabilities change the dynamics of value creation. Smart businesses allow the entire value chain to be reconfigured to achieve both scale and customization, using the combination of two forces, network coordination and data intelligence. Network coordination + data intelligence = smart business. Network coordination is the breaking down of complicated business activity so that groups of people or firms can get it done more effectively. Data intelligence is what author calls business activity of effectively iterating products and services according to consumer activity and response.

Constant flowing data created from real-time interactions and processes online, creates a continuous feedback loop that automatically generates decisions that become increasingly »intelligent«. Companies can transform themselves by ensuring that routine decisions are made automatically. Smart business automates much of the exploitation to which firms are accustomed, but in return requires much more experimentation.

Strategy no longer means analysis and planning, but rather a process of real-time experimentation and customer engagement. When strategy is no longer predicated on competition, but centers on coordination, the ways of creating value are completely transformed. Chinese companies are better positioned to take advantage of networks coordination – combining business actors seamlessly across the internet versus building corporate organizations.

Management must move from managing business to enabling it.

Network coordination is the nearly autonomous management of the simultaneous interactions of multiple parties to a business task. In Alibaba this is about online orchestration of sellers, buyers, producers and logistic players. They apply networks approach since they lacked the time, skills, or investment resources to create some of the capabilities needed in-house. Today’s demand like scale, cost, speed and customization, can only be covered by decentralized structure of network coordination.

In Alibaba Tmall is the website for larger brands and Taobao is the wider online marketplace for small boutique brands, independent sellers, and innovators like the web celebs. Web celebs have used power of Weibo, Chinese social network in which Alibaba owned 18% in 2013. And in 2014 they increase share to 32%. Weibo compete with Tencent’s Weixin. Web celebs organize flash sales combining them with marketing tactics called starvation marketing.

Taobao grew from forum for buyers and sellers. It started in 2003. Because e-commerce in China emerged without models or precedents, Taobao’s value as an online marketplace quickly began to spill over into the offline world, sellers formed informal networks encouraging more service providers into platform. To help with customer communication and interactions, Taobao built an instant-messenger service in 2005. It is called Wangwang. By 2006 Taobao network grew deeper. It entered stage of rapid growth as the first independent service vendors (ISVs), a new and important group of players, were born. Photographers, designers and writers began to partner with sellers to decorate their virtual storefronts. Taobao introduced Wangpu, a series of standard templates for storefront. And they even introduced platform to organize those ISVs. Based on this development Alibaba articulated new strategy; fostering the development of open, collaborative, and flourishing e-commerce ecosystem. The company positioned itself as a platform with the goal of developing the infrastructure to fully enable online commerce. Around 2013 Taobao was even expanding into marketing and finance. Connecting with outside platforms like Weibo, Ant Financial Services, logistic companies and the supply chain. Starting to introduce all kind of API as a technological tool for connecting outside partners.

There are four main blocks to be successful in network coordination:

  • Direct connection and interaction
  • Role evolution
  • Investment in infrastructure
  • Putting business activities online

Mechanism of direct connection in marketing at Taobao is Taobaoke, a marketing affiliate program set up by Taobao’s marketing department Alimama. Since network is live organism, you need to let it evolve according to actors that enter and the consumers it serves. Tao University and third-party software developers were important roles in ecosystem. Another one was web celebs and product recommender.

Infrastructure refers to the tools and mechanisms that undergird a business network, such as reputation systems, search functionality, virtual computing resources, API’s. Taobao continually introduce new features to solve barriers to doing business. Alipay with its escrow services reduced trust barriers in the early days of e-commerce. With new logistic platform they solve also issues on logistic side.

When putting activities online two processes are important. Business “softwaring” – retooling a business and its decisions using digital software, so that it can best achieve network coordination and data intelligence. And datafication – the encoding of an activity or a phenome into a form understandable by computers.

Network coordination could not happen without the development of open source cooperation as the dominant form of software development. Linux initiated open-source development but it was followed by others like Apache Software Foundation – Spark, Hadoop, Databricks, My SQL. The introduction of open API is a part of this development. But to coordinate network businesses you need more than just network structure. You need also the technological solution to coordinate activity across the network. The solution is data intelligence: the data, algorithms and machine learning needed to ensure efficient, effective coordination. Data intelligence is the yin to the network yang.

Google’s web search, Taobao’s recommendation engines and Uber’s ride matching are all examples of data intelligence in action. Data intelligence is becoming the most important source of competitive advantage. The confluence of cloud and mobile computing, advances in datafication and especially progress in AI are creating truly new capabilities that will change how companies operate and compete.

With growth of transactions, Alibaba needed to improve their infrastructure. Without cloud computing this would not be possible. As did Amazon, commercial offerings of cloud actually came out of need for their own infrastructure. Deployed as commercial services, cloud computing allows companies to buy small chunks of computing power, thus turning the fixed cost of in-house servers into variable cost. Alibaba recent investment into cloud computing came from company leadership’s realization in 2008 that IT expenses paid to companies like Cisco and Oracle would soon outstrip the company’s entire revenue stream, not just its e-commerce businesses. Cloud computing is complicated and extremely expensive to develop.

Another important aspect of infrastructure development was mobile computing. Mobile world is specific and is growing rapidly, so any forefront company, should address this area.

In 2012 there was a need from customers for some sort of financial support system. They created high-functioning, scalable and profitable SME lending business. This business was originally called Alibaba Microloans and was part of Alipay, which later became Ant Financial Services. Today this business is located under MYbank. Their business is sustainable, the default rate is very low, due to data intelligence build into business model. Learning model is built on probalistic reasoning with data coming from every transaction customer have on Alibaba platform. Their business model requires three fundamental steps for data intelligence to operate: adaptable products, datafication and machine learning. The products of the future are capable of adapting to the user and environment by themselves, and hence become “smart”.

Author use the word datafication instead of the more common digitalization, which is associated with the translation of words and numbers into binary code.

Alibaba also use chat bot AliMe and a lot of A/B testing methods, to determine which action is better.

Smart businesses automate every decision possible. Data intelligence makes such decisions continually smarter – both in terms of responding to consumers and to efficiently coordinate the network. With data intelligence and coordinated networks, businesses can simultaneously scale and customize. This is the ultimate business advantage brought on by the internet and AI.

The five steps for automating decisions:

  • Datafy the physical world
  • Software the business
  • Get data flowing
  • Record data in full
  • Apply machine-learning algorithms

Taobao growth was part of its ability to expand based on database that could encode information across industries for hundreds of millions of SKUs in a searchable form. Taobao also become one of the largest repositories for physical addresses in the world, thanks to its enormous number of transactions.

Firms must capture every business activity; not just knowledge management and customer relations, in digital form so that decisions affecting the activities can be automated. Traditional (hardware) business have strong inertia, high transaction costs, and can rarely be monitored cheaply or adjusted on the fly. Smart business main prerogatives are to act on demand, to react in real time to changes in the market, and to coordinate effectively with partners and clients across many functional areas. Softwaring is an essential step in making sure that resources within the business can be allocated elastically.

In smart business machines have to be able to “talk” to each other. APIs allow applications to communicate with one another. Only after a firm can automate its decision making online, can it implement data intelligence and reap a benefit of the continual improvement of this core capability. On Taobao, the average seller might subscribe to more than a hundred software modules offered through the platform.

In the current operating environment, live data is a crucial competitive advantage, not merely a nice thing to have.

At the heart of smart business are algorithms. In 2006 Taobao introduced search engine instead of indexing engine. Using machine learning, Taobao launched its first truly large-scale search product, called Archimedes in 2010. In addition to traditional benchmarks such as conversion rates, average customer spend and transaction value, it looks at whether products are returned by the buyer, when buyers and sellers enter dispute that need to be resolved by the platform, when buyers have complaints about sellers, and whether a seller has a good credit rating.

Mobile environment is difficult to handle. Different teams managing separate products made sense in a desktop setting, where each of these separate business settings required supporting different groups of sellers and consumers. But in a mobile world, even objectively discrete business problems needed coordination for an effective solution. Mobile refers to a whole series of organizational and technological structures, including ways to collect, use and evaluate data. Taobao consolidate various recommendation teams under the search department.

Process of unification of recommendation systems was based on:

  • New forms of datafication
  • Softwaring
  • Talk between different recommendation systems
  • Live-data mindset
  • Same machine-learning algorithms

Centering your business around direct interaction with your customer sets into motion a striking reorientation of all business activities. Author calls this change the customer-to-business (C2B) model. Every function in business must be on demand. One example of C2B model is Big-E, China most successful web celebrity. They use on-demand marketing, mostly accomplished through social media.

Web celebs have change clothing industry. Traditional clothing manufacturing can be split into four stages: pattering, cutting, sewing and finishing. The average Chinese factory can accomplish all four tasks in twenty days at the low and or sixty business days at the higher end. But online industry with web celebs as frontrunner is using tight communication and network coordination to improve those time and work on fast restocking to lower stock levels, but also to deliver what needed in time.

Ruhan is a company that partners with those online fast-moving companies. They are working with a network of partner factories, to cover very variable demand. Partners will use their SaaS platform (Software). Their Layercake software allows all partners in the network to know exactly was going on. Simultaneous information access by multiple parties is an essential feature of network cooperation. Layercake connects and coordinates data from four areas of Ruhan’s business: social networks, trade, warehousing and manufacturing. Layercake’s processes begin with design in SCM module, from there, proceed to procurement and manufacturing before finally creating an order. What is new is that all of the data involved in the design and manufacturing processes are coordinated with real-time demand from consumers. Ruhan is developing its own software platform for fashion designers, called Deep Fashion, which will crawl the web and analyze fashion trends on platforms like Instagram.

Four general principles for implementing C2B aligned operations are:

  • Develop a Smart Network
  • Design the Right Internet Interface
  • Build a C2B Beachheads
  • Utilize the Capabilities of Platforms

If you want to fulfill the needs of any one consumer, you need the capabilities to fulfill the needs of every consumer. Today’s consumer demand cost, speed, quality and personalization all at the same time. C2B follows a pull logic rather than a push one. Using the internet’s huge business advantage of simultaneously interacting with masses of people and getting their real-time feedback at very low cost is almost a no-brainer. Most C2B businesses evolve over time. Once you build the first module and create a beachhead, its competitive advantage will create a momentum to pull in all of the related functions. C2B has two important implications: customizing offerings to customers and automating decision making.

We can define business ecosystem more precisely as a smart network that evolves to solve complicated problems. In traditional businesses positioning on the market was important. In new interconnected economy, you need to have a clear picture of your strategic position in the network.

Three basic positions in network economy are:

  • Point
  • Line
  • Plane

Points are individuals, or firms, that possess specialized skills but often cannot survive by themselves. Points provide functional services. Lines are firms that combine productive functions and capabilities to create products and services, often utilizing the services provided by the points and planes. Planes are the platforms that help new lines form and grow by providing infrastructural services and jump-starting point growth.

Line firms provide direct services to clients, much like traditional B2C companies. The core capability of the line as an organization is to coordinate different functions to create a tangible product or service. Lines take advantage of platform infrastructure and other resources to access and coordinate the points that build their own business. The line player must decide to partner with the right platform or plate. Access to, rather than owning, the right resources is what the new line companies seek.

Since 2010 the most valuable companies in the world, such as Alibaba, Facebook and Google, have all based their core products and services on platform. The plane strategy comes with substantial risk, suffers from long and costly incubation periods, and mandates a constant balancing act between the interests of all players on the platform. Planes core value proposition is the matching of buyers and sellers, search users and advertisements, social network users and information. Their income comes from monetizing the matching process. Another concept close to planes are marketplaces.

In most cases, points do not offer complete products or services to consumers or clients. Points value propositions are very simple, many point opportunities have little in the way of entry barriers. Point positions are thus very suitable for individual players or small firms. The core strategy for a point player is to enter the right plane at the right time and to capture as much of the value created as possible, even from its partners, for as long as possible.

Points, lines and planes are interdependent; they coevolve. Planes work by supporting more and more lines with increasing efficacy. Lines work by finding the best points and combining them into services that minimize transaction costs while achieving quality and economies of scale. Points work by finding the best plane, which in turn helps them find the best lines.

Four general principles for strategic positioning are:

  • Core strategic positions are interdependent
  • Be very clear on who is and isn’t your competition
  • Be creative in building new lines
  • Planes must steward an ecosystem of superior value

In a world of smart business, firms cannot construct competitive business models on their own. Firms located in different dimension (of plane, point, line framework), do not directly compete with each other. Lines have the core advantages of being customer driven; they are exemplars of C2B. Being customer driven C2B businesses are likely to be embedded in a plane. Without compelling, revolutionary, and highly focused customer value, a plane will not survive the long and difficult period of incubation. Firms don’t only need to reorient their strategies, organizations themselves need to transform and become smart as well.

One of the most important organizational processes a smart business needs to change is how to formulate and implement strategy. The classical approach of analyze, plan, and execute is much too slow and inflexible for today’s environment. Instead of formal planning, strategy formulation is the constant and rapid iteration between vision and action. In traditional approach management makes trade-offs between exploration and exploitation. New approach is more experimental. It is called »self-tuning«. Self-tuning means that learning becomes the central focus of an organization. The strategy making process is one of generating, coordinating and modifying experiments.

Experimentation does not occur at random. Engineers design algorithms to test various options economically minimizing search time and computing cost. The world’s top internet companies are taking the self-tuning mindset behind data intelligence a step further, experimenting with how self-tuning principles can be applied to the entire enterprise. Even if we imagine that we will run organization like an algorithm, humans still need to set goals or objections, like with algorithms. In organization this objection is vision. When vision changes over time, so will business models evolve. Organization collectively monitors the competitive environment, consumer engagement, and system-wide results, it intervenes when necessary, adjusting infrastructure, goals, and vision to shape a healthy, productive business.

The vision or mission was let important when future was more predictable. Today, vision is the heart of a firm’s strategy. It must be clearly understood, trenchantly described, and regularly updated to bring together a network of suppliers, producers, partners and customers. Vision describes what the firm seeks to achieve and defines the scope of exploration. It defines where the firm fits into the future. The mission, on the other hand, is the change the firm is driven to make in the world. It is the firm’s reason for existing, and the clarion call by which it attracts talent and resources to its side. It is important to notice the difference. One is fixed raison d’etre (mission), other is mutable, improvable view of future (vision). The more connection the vision can inspires, the more assets the visionary can mobilize. Traditional corporate leaders do not shape the future; they run a machine. A clear vision shapes the future and directs the network’s evolution but the vision must continually incorporate feedback and evolve within the larger environment.

Alibaba applied an experimental approach to our vision. Rather than treat our vision as a given, the company instead posited a vision, given the best working assumption about the future and using all available information. Its vision evolves from: “an e-commerce company serving China’s small exporting companies”, to “we aim to build the future infrastructure of commerce”.

Their way of handling changes is that whenever business leader sees change or new opportunity, he/she can call “cocreation” meeting (gong chuang). Steps of it are: first they set a ground truth – based on signals and data. Then they check user background as much as possible. Then they create action plan, with clear responsibilities, mechanism for action, metrics for evaluation and the timeline. Last step is user feedback.

There are three important steps in strategy-making process for smart business. Vision is critical. Smart businesses constantly retune their visions. Strategy formulation is dynamic for smart businesses. It is called iteration through experimentation. The most important arena for experimentation as business models. Change is the natural outcome and an essential feature of the organization.

Some real-life examples of Alibaba experimentation are Tmall that tried to catch B2C wave in 2006 and is major part of group portfolio now. AliSoft company set up to catch SaaS wave was shut down in 2009. It is actually human factor of deciding when to stop and when to keep exploring, that can be a difference in success of many businesses.

In 2011 Taobao business was split into three independent and competing business units: Taobao (C2C), Tmall (B2C) and Etao (product search and aggregating information across different marketplaces and platforms).

In Alibaba change is wired into its DNA. If you have not changed bosses five times in a year, you haven’t seen real change. A key consideration in Alibaba’s hiring decisions is a candidate willingness to change. When assessing candidates, interviewers regularly ask about the biggest change a candidate has experienced and how he or she dealt with it. Organizational change must be institutionalized and normalized.

In smart businesses management is moving from managing to enabling. Innovation and creativity are the crucial human input that keeps an organization growing and thriving.

In the industrial age, organizations aimed to improve the efficiency of resource utilization. In the knowledge age, they optimized knowledge usage and management. Now, in the new age of smart business, an organization’s goal is to improve the efficiency on innovation founded on human insight and creativity.

Internally, the organization connects employees with different discipline expertise relevant to customer needs. At the same time, using data intelligence, the organization must provide internal platforms and data resources that make workflows smarter. In this new setup, the job of management is enablement, managing experimentation. Instead of micromanaging the firm, management creates the organization’s architecture to run itself. Most of management job now will be about understanding the type of people organization needs; appealing to them; and designing the architecture for the interaction between groups of creators and their work, all to make innovation more effective.

Smart business requires people who combine creativity with technological comfort and business savvy. The employees may seek advice and input but not directions. Management’s first function is finding the right people for its business. This requires different recruiting, vetting, and incentive systems than the ones most companies use today. Commensurate financial rewards for high performers are necessary but not sufficient. A compelling mission, an empowering environment, and a distinctive culture are also necessary for success.

Alibaba’s mission is to make it easy to do business anywhere. Their values are:

  • Customer first
  • Teamwork
  • Embrace change
  • Integrity
  • Passion
  • Commitment

With those values and forward-looking environment, monetary rewards are still important, but not enough. Monetary compensation, including options, emphasizes rewards after the work is done. Culture is important for Alibaba; they want environment that will have a lot of positive energy. Employees have nicknames, that they use for all internal communication. There was only one president, president Ma. They have a special HR team, that is determining the match between candidate and strong corporate culture. In smart business, culture is fundamental.

Company moves fast, requiring emotional and social maturity, and individual success often rests on an ability to speak directly to colleagues and to executives in power. Infrastructure to support enabling more than managing is also important. A common technology platform and infrastructure where learning and experimentation can be tried, applied, and adjusted across the system is an essential first step. HR management, resource allocation, project coordination, budgeting, and other aspects of financial management all become services provided by the platform.

 Many technology companies have developed versions of real-time, online, user-centered, and objective evaluation system more in tune with their goals, in contract to traditional KPI system. They can be called metrics evaluation systems. The system has three main components: metric research, an online monitoring system, and a system to design and run A/B tests. As the product evolves, the monitoring results will set off instant parameter adjustments, design changes, or other decisions. Metrics system and technological infrastructure must be woven together.

As a data-driven company, Alibaba has a multilevel infrastructure, including a data-storage and data-processing platform powered by Alibaba Cloud. Some of the parts are Alibaba Cloud’s AI and ML platform that contains PAI, a collaborative platform for code, algorithms, and models. Aone (Alibaba One Engineering System), which includes project and process management software. This infrastructure enables people with different expertise to collaborate efficiently and to focus on their most important task: creativity.

Another useful tool is also AutoNavi, one of China’s largest digital mapping and navigation service providers.

To become smart, an organization has to replace its IT structure with an open web-based infrastructure. The infrastructure must have common standards, API’s, and a searchable depository for the accumulated information. Transparency is needed and on a long run outweighs uncomfortable risks.

The business world is in a very interesting transition period. Ona the one hand, the digital revolution has been going on for so long that, to paraphrase a common Silicon Valley saying, the horizon is clear, but the distance is unknowable. Chinese firms that use widespread network coordination and Western firms that have developed data intelligence are competing and cooperating all over the world. As leaders learn from each other, East and West will merge to define the future of business.

Feedback is a prerequisite for learning, and fast feedback loops speed up learning. Automated real-time feedback loops, like those used in data intelligence, put learning on steroids and create an unprecedented advantage.

If you want to actively work in changed structure, you need to adapt in a way:

  • Correct decisions today rest on your view of the future.
  • Creativity will be the only source of value creation.
  • The individual is more powerful today than ever before.

Drucker saw three revolutions in business: industrial, managerial and knowledge. In Alibaba, they see fourth revolution: the creativity revolution. Mobile shopping, same-day delivery and trust between strangers has become norm for the new generation of young Chinese.

China retail didn’t exist. Alibaba’s strategic vision demands large-scale collaboration and the construction and operation of vast, connected business systems. It was established in 1999 and turn profitable in 2002. Their core commerce business platforms are operating in four areas:

  • Retail commerce in China (Taobao, Tmall, Juhuasuan, Rural Taobao)
  • Wholesale commerce in China (1688.com)
  • Cross-border and global retail commerce (AliExpress, Tmall Global, Lazada (South East Asia))
  • Cross-border and global wholesale commerce (Alibaba.com)

They also control financial part of transactions: Ant Financial and Alipay.

Logistic is covered by Cainiao Network, that operates as logistic data platform that exploits the capacity and capabilities of logistic partners to fulfill transactions between merchants and consumers on a large scale.

Alibaba cloud is responsible for cloud computing part of business.

New businesses are developed in digital media and entertainment: Youku Tudou and UC Browser. They are distribution platforms. UC browser is one of the top three mobile browsers in the world. They also have AutoNavi and local services like Koubei and Ele.me (local services guide and food delivery).

Taobao growth occurred in four stages:

  • Building the online marketplace.
  • Building the coordinated network.
  • The emergence of smart business.
  • Exponential growths through smart business.

Building the online marketplace was all about putting products, merchant-consumer interactions and transactions on marketplace. They lacked data intelligence. The most important infrastructure created in this period were instant messaging (The Wangwang) and payments (introducing AliPay and escrow transactions).

The following elements of network coordination got the marketplace off the ground: early organization, early supporting functions and early subnetworks. Infrastructure needed to evolve in order to follow demand. Following tools and mechanisms were introduced: logistic, reputation systems and category expansion and datafication.

In the time of emergence of smart business from 2009 to 2012, Alibaba used his buying of Yahoo China in 2005 to infuse advertising technology into the system. They brought traffic from other sites into their ecosystem. Three factors were important for this development: network expansion, specialized third-party roles and new organisms. By bringing efficiency and fostering new connections to the marketplace, following new technologies formed second DNA strand of Taobao (data intelligence): ad technology and evolution of search. Infrastructure find itself under pressure again, forcing it to evolve into: cloud computing, use of API and development of Jushita operating cloud – enclosed environment for data sharing and processing, used by merchants and ISVs.

Exponential growth of Smart Business from 2013 to 2017 saw transformation from search to recommendation, upgrades of AI technology and expansion of coordinated network. Following developments expanding Taobao reach: external marketing networks, social media, complex new roles, penetration into the countryside and across the world. Data intelligence elements that improved in this period were: comprehensive AI technology, finance, logistic. The most important infrastructure development was focus on mobile, with cloud computing and AI improving as well.

Main steps in Taobao development were:

  • Introducing Wangwang chat feature.
  • Introducing escrow accounts with AliPay. (In China e-commerce transaction is only finished when buyers confirm delivery of goods.)
  • Establishing credit ratings to digitalize reputation.
  • Development of customer services, like Taobao University
  • Improving data intelligence, working with category splitting and increased data flows.
  • Improved fulfillment, creating platform for third party logistic providers to be integrated into ecosystem. They embedded shipping into escrow workflow.
  • Creating of Alimama, marketing technology platform.
  • Developing new fusion of search and ads. Seller investing in marketing boost sales and as such improving its search metrics.
  • Growing network and introducing platform for advertisement and monetizing the ads. But in China commissions are based on sales not clicks. Platform was called Taobaoke.
  • Moving into mobile world, growth of influencers.
  • Move from search to recommendation. AI banner design software LuBan.
  • From retail to content. Video now appears all across Taobao app. Secret area of app was introduced in 2016 – Taobao Loft.

Strategy is changing. Clayton Christensen’s ideas on disruptive innovation offered a template for how firms could understand change and respond when a new technology or approach disrupts a formerly indomitable incumbent. Royal Dutch Shell’s scenario planning helped companies do strategic planning in a much less predictable environment. W. Chan Kim and Renee Mauborgne’s blue ocean strategy helps companies and entrepreneurs develop new markets all together.

Porter described how technology has reshaped traditional competition and strategy in successive waves. First automated business activities and standardized business processes, unleashing knowledge revolution. Second allowed companies to coordinate and integrated global supply chains to enhance productivity. Third transforms products themselves.

On a deep level, the strategy of smart business is concerned with mediating economic relationships (network coordination) and designing the mechanisms that quantitatively optimize those relationships (data intelligence). Why new smart businesses are so competitive, because their business models are based on information, that is good without finite stock, and as such can create enormous value. That value is hard to predict, since it is different for different people.

Network coordination and data intelligence are winning formula. In practice, they both require similar foundational work, such as softwaring all activities, putting business processes online, and ensuring data flow through APIs. Furthermore, the two forces feed into each other.

The platform’s role is to enable the players on the platform, not to manage their actions. Infrastructure comprises two key ingredients for enabling business: tools and rules. Tools are products and functionality that enable connection and collaboration, like API technologies or the Taobaoke affiliate marketing platform. Rules are mechanisms that facilitate healthy partnership and competition, such as Taobao’s reputation systems or search algorithms.

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